Friday, February 24, 2006

Point of Clarification

I think I might have misled others in my previous post so it’s important that I set the record straight. I hope I have not influenced anyone the wrong way when I encouraged people to be in debt.

For me, I consider borrowing money into two types. There is irresponsible borrowing and responsible borrowing.

When you buy a 50” plasma TV on installment at 20% interest that’s irresponsible borrowing. When you borrow money to buy a $30,000 dollar car, when you can make do with a $6,000 Japanese import that is irresponsible borrowing. When you use your credit card to buy designer clothes and only pay the monthly minimum payment that is irresponsible borrowing. In other words if you borrow money to buy something that will not generate income and only puts you more into debt as a result of interest payments, that is being irresponsible.

If I loan money to buy a rundown house with the intention of renovating it and then either reselling it or having it rented, then that’s responsible borrowing. Because even though I’ll be paying interests on the mortgage, I am still in a position to make more money from the investment. If I borrow money to buy a van to start a “food on wheels” business, that’s responsible borrowing (provided of course you've made a feasibility study that it will make money). On a larger scale, if I borrow money to open a Jollibee franchise in my hometown in Pampanga, that's not a fantasy. It's a probability. And it's borrowed money that won't be wasted.

T

he type of borrowing I’m advocating is only the responsible type. Borrowing for the sake of borrowing is folly. Paying interests for borrowed money that doesn’t generate income is not being clever. Kung gusto mo ng plasma TV, pag-ipunan mo, huwag mong utangin. Use your credit cards, but always pay the amount owed in full para walang interest. Lakasan niyo ang loob niyo na mangutang especially if it is for income generating ventures. It's a benefit/cost thing. If you think the benefits will outweigh the costs, go for it, mate!

good on you pobs! now that you owe no debt, i encourage you to be brave and borrow money again. this time borrow money for an investment. borrow money only if it will generate more money. you don't have to start big. start with something small. say $20000 worth of investment. pwede na yon pampatayo ng apartment sa pinas, di ba? eventually, the apartment will pay for itself. after 15 to 20 years bayad na yon.

tama ka jan katrina, minsan kinakailangan gawin ang pangungutang ng hindi importanteng bagay. but you're doing it for a specific purpose which is to build up a credit history. okay yon. that's part of the game.

nothing wrong with buying plasma, mercedes benz or designer clothes if the interest rate on those is only 4%.

well if you got property (properties) whose market value is more than your liabilities (debts such as mortgage(s, credit card(s), etc) the bank will give you the preferred rate of 2%-4% interest rate which they call as a secured loan based on the property equities. it's also known as a "secured" line of credit. the outstanding debt is paid on monthly basis up to 5 years, however the amount paid is added to the available line of credit so in a way your available funds to spend remains growing depending on the amount you pay back.

this is really how the well off people do it. a lot of people do not know this procedure. if you have more assets than liabilities then this is the route.

just imagine going for a cruise paying 4% interest than the 25% credit card payments. or buy a jag paying 4% interest than the usual 17% interesnt. cool huh!!

banks wouldn't normally offer this to you. but if you already have built up a relationship with a bank financial advisor, you could inquire about the secured line of credit.

jon,any electronic appliance depreciated na the moment you take it out of the store, di ba? i think the point is, if there is a choice between buying in cash and buying installement at 0% interest for the same price (and no hidden costs), it is a no brainer to go with the latter. kahit may cash akong pambili, i'ld still go with the latter. of course the other option is not to buy at all and invest the money instead somewhere else. well that's a good idea too.

major tom,katulad mo ako major. takot din akong mangutang. it is more my wife who has the lakas ng loob to do so.

analyse,3.5% lang. wow galing naman. here we're paying 8% at least. can't complain though, because house prices have risen at least 80% in last 2 years alone. also we have no capital gains tax which makes it very profitable to buy and sell houses.

raquel,thanks.

rhada,i know you do.

air m,that's very true about owning property and getting preferrential treatment from banks. so my advise to new migrants here that i talk to is to plan to buy their own house as soon as they could. then try to pay off the mortgage the soonest possible time so their equity increases. a bigger equity results in bigger credit line.

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Reflections on life, my past and anything under the sun as well as a journal of how it is to live in Aotearoa, "The Land of the Long White Cloud", which is New Zealand, from the viewpoint of a middle class Filipino family. Mga hinagpis, kakwelahan, ka-homesick-an ng isang Pinoy sa lupa ng mga ibong walang pakpak (kiwis) na mahaba ang tuka.

About Me

tipikal na pinoy workng in the IT industry. pero hindi mukhang nerd (that's what you think, sabi naman ng bruha kong anak). may maganda, mabait at napaka-sarap maglutong asawa at isang napakatalinong (mana sa ina), nagdadalagang anak. i've been in IT since the early 80's (tanda na no?). have worked in Saudi Arabia, then in Cal,USA, before finally settling in Auckland in '96.

Living in NZ

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